IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Capital Structure Choice and Company Taxation: A Meta-Study

Listed author(s):
  • Lars P. Feld
  • Jost Henrich Heckemeyer
  • Michael Overesch

This paper provides a quantitative review of the empirical literature on the tax impact on corporate debt financing. Synthesizing the evidence from 46 previous studies, we find that this impact is substantial. In particular, the tax rate proxy determines the outcome of primary analyses. Measures like the simulated marginal tax rate (Graham (1996a)) avoid a downward bias in estimates for the debt response to tax. Moreover, debt characteristics, econometric specifications, and the set of control-variables affect tax effects. Accounting for misspecification biases by means of meta-regressions, we predict a marginal tax effect on the debt ratio of 0.3.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2011/wp-cesifo-2011-03/cesifo1_wp3400.pdf
Download Restriction: no

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3400.

as
in new window

Length:
Date of creation: 2011
Handle: RePEc:ces:ceswps:_3400
Contact details of provider: Postal:
Poschingerstrasse 5, 81679 Munich

Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo-group.de
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Thiess Buettner & Georg Wamser, 2009. "Internal Debt and Multinationals' Profit Shifting - Empirical Evidence from Firm-Level Panel Data," Working Papers 0918, Oxford University Centre for Business Taxation.
  2. C. Fritz Foley & Jay C. Hartzell & Sheridan Titman & Garry Twite, 2006. "Why do firms hold so much cash? A tax-based explanation," NBER Working Papers 12649, National Bureau of Economic Research, Inc.
  3. Antoniou, Antonios & Guney, Yilmaz & Paudyal, Krishna, 2008. "The Determinants of Capital Structure: Capital Market-Oriented versus Bank-Oriented Institutions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(01), pages 59-92, March.
  4. Rosanne Altshuler & Harry Grubert, 2001. "Repatriation Taxes, Repatriation Strategies and Multinational Financial Policy," NBER Working Papers 8144, National Bureau of Economic Research, Inc.
  5. Schindler, Dirk & Møen, Jarle & Schjelderup, Guttorm & Tropina, Julia, 2013. "International Debt Shifting: Do Multinationals Shift Internal or External Debt?," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79749, Verein für Socialpolitik / German Economic Association.
  6. Jeffrey A. Wurgler & Malcolm P. Baker, 2001. "Market Timing and Capital Structure," Yale School of Management Working Papers ysm181, Yale School of Management.
  7. De Long, J Bradford & Lang, Kevin, 1992. "Are All Economic Hypotheses False?," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1257-1272, December.
  8. Card, David & Krueger, Alan B, 1995. "Time-Series Minimum-Wage Studies: A Meta-analysis," American Economic Review, American Economic Association, vol. 85(2), pages 238-243, May.
  9. Michael Faulkender & Mitchell A. Petersen, 2003. "Does the Source of Capital Affect Capital Structure?," NBER Working Papers 9930, National Bureau of Economic Research, Inc.
  10. Frank, Murray Z. & Goyal, Vidhan K., 2009. "Capital Structure Decisions: Which Factors are Reliably Important?," MPRA Paper 22525, University Library of Munich, Germany.
  11. Christopher Green & Victor Murinde, 2008. "The impact of tax policy on corporate debt in a developing economy: a study of unquoted Indian companies," The European Journal of Finance, Taylor & Francis Journals, vol. 14(7), pages 583-607.
  12. Frances Ruane & Padraig Moore, 2005. "Taxation and the Financial Structure of Foreign Direct Investment," The Institute for International Integration Studies Discussion Paper Series iiisdp88, IIIS.
  13. Michael L. Lemmon & Michael R. Roberts & Jaime F. Zender, 2008. "Back to the Beginning: Persistence and the Cross-Section of Corporate Capital Structure," Journal of Finance, American Finance Association, vol. 63(4), pages 1575-1608, 08.
  14. Anne-Célia Disdier & Keith Head, 2008. "The puzzling persistence of the distance effect on bilateral trade," Post-Print hal-01172854, HAL.
  15. Graham, John R. & Kim, Hyunseob, 2009. "The Effects of the Length of the Tax-Loss Carryback Period on Tax Receipts and Corporate Marginal Tax Rates," National Tax Journal, National Tax Association, vol. 62(3), pages 413-427, September.
  16. Havranek, Tomas & Irsova, Zuzana, 2011. "Estimating vertical spillovers from FDI: Why results vary and what the true effect is," Journal of International Economics, Elsevier, vol. 85(2), pages 234-244.
  17. T.D. Stanley, 2006. "Meta-Regression Methods for Detecting and Estimating Empirical Effects in the Presence of Publication Selection," Economics Series 2006_20, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  18. Rajan, Raghuram G & Zingales, Luigi, 1995. " What Do We Know about Capital Structure? Some Evidence from International Data," Journal of Finance, American Finance Association, vol. 50(5), pages 1421-1460, December.
  19. Gordon, Roger & Lee, Young, 2007. "Interest Rates, Taxes and Corporate Financial Policies," National Tax Journal, National Tax Association, vol. 60(1), pages 65-84, March.
  20. Thiess Buettner & Michael Overesch & Ulrich Schreiber & Georg Wamser, 2006. "Taxation and Capital Structure Choice – Evidence from a Panel of German Multinationals," CESifo Working Paper Series 1841, CESifo Group Munich.
  21. Konstantinos Tzioumis & Leora F. Klapper, 2012. "Taxation and Capital Structure: Evidence from a Transition Economy," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 68(2), pages 165-190, June.
  22. de Jong, A. & Kabir, R. & Nguyen, T.T., 2007. "Capital Structure around the World: The Roles of Firm- and Country-Specific Determinants," ERIM Report Series Research in Management ERS-2007-058-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
  23. T. D. Stanley, 2005. "Beyond Publication Bias," Journal of Economic Surveys, Wiley Blackwell, vol. 19(3), pages 309-345, 07.
  24. Hristos Doucouliagos & T.D. Stanley & Margaret Giles, 2011. "Are Estimates of the Value of a Statistical Life Exaggerated?," Economics Series 2011_2, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  25. Büttner, Thiess & Overesch, Michael & Schreiber, Ulrich & Wamser, Georg, 2008. "The impact of thin-capitalization rules on multinationals' financing and investment decisions," Discussion Paper Series 1: Economic Studies 2008,03, Deutsche Bundesbank, Research Centre.
  26. Céspedes, Jacelly & González, Maximiliano & Molina, Carlos A., 2010. "Ownership and capital structure in Latin America," Journal of Business Research, Elsevier, vol. 63(3), pages 248-254, March.
  27. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March.
  28. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
  29. Desai, Mihir A. & Fritz Foley, C. & Hines Jr., James R., 2008. "Capital structure with risky foreign investment," Journal of Financial Economics, Elsevier, vol. 88(3), pages 534-553, June.
  30. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  31. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  32. Graham, John R., 1996. "Debt and the marginal tax rate," Journal of Financial Economics, Elsevier, vol. 41(1), pages 41-73, May.
  33. Gorg, Holger & Strobl, Eric, 2001. "Multinational Companies and Productivity Spillovers: A Meta-analysis," Economic Journal, Royal Economic Society, vol. 111(475), pages 723-739, November.
  34. Soku Byoun, 2008. "How and When Do Firms Adjust Their Capital Structures toward Targets?," Journal of Finance, American Finance Association, vol. 63(6), pages 3069-3096, December.
  35. Card, David & Kluve, Jochen & Weber, Andrea, 2009. "Active Labor Market Policy Evaluations: A Meta-Analysis," IZA Discussion Papers 4002, Institute for the Study of Labor (IZA).
  36. Nadja Dwenger & Viktor Steiner, 2014. "Financial leverage and corporate taxation: evidence from German corporate tax return data," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(1), pages 1-28, February.
  37. Kesternich, Iris & Schnitzer, Monika, 2007. "Who is Afraid of Political Risk? Multinational Firms and their Choice of Capital Structure," CEPR Discussion Papers 6468, C.E.P.R. Discussion Papers.
  38. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  39. Gordon, Roger H., 2010. "Taxation and Corporate Use of Debt: Implications for Tax Policy," National Tax Journal, National Tax Association, vol. 63(1), pages 151-174, March.
  40. John R. Graham & Lillian F. Mills, 2007. "Using Tax Return Data to Simulate Corporate Marginal Tax Rates," NBER Working Papers 13709, National Bureau of Economic Research, Inc.
  41. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, 09.
  42. Harry Huizinga & Luc Laeven & Gaetan Nicodeme, 2006. "Capital structure and international debt shifting," European Economy - Economic Papers 2008 - 2015 263, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  43. Graham, John R. & Tucker, Alan L., 2006. "Tax shelters and corporate debt policy," Journal of Financial Economics, Elsevier, vol. 81(3), pages 563-594, September.
  44. Michael Pfaffermayr & Matthias Stöckl & Hannes Winner, 2008. "Capital Structure, Corporate Taxation and Firm Age," Working Papers 0829, Oxford University Centre for Business Taxation.
  45. Roger H. Gordon & Young Lee, 1999. "Do Taxes Affect Corporate Debt Policy? Evidence from US Corporate Tax Return Data," NBER Working Papers 7433, National Bureau of Economic Research, Inc.
  46. Graham, John R., 1999. "Do personal taxes affect corporate financing decisions?," Journal of Public Economics, Elsevier, vol. 73(2), pages 147-185, August.
  47. repec:ntj:journl:v:54:y:2001:i:n._1:p:27-56 is not listed on IDEAS
  48. Ruud A. de Mooij, 2011. "The Tax Elasticity of Corporate Debt; A Synthesis of Size and Variations," IMF Working Papers 11/95, .
  49. Francesca Barion & Raffaele Miniaci & Paolo Panteghini & Maria Laura Parisi, 2010. "Profit Shifting by Debt Financing in Europe," CESifo Working Paper Series 2985, CESifo Group Munich.
  50. Lars P. Feld & Jost H. Heckemeyer, 2011. "Fdi And Taxation: A Meta‐Study," Journal of Economic Surveys, Wiley Blackwell, vol. 25(2), pages 233-272, 04.
  51. John R. Graham & Mark H. Lang & Douglas A. Shackelford, 2002. "Employee Stock Options, Corporate Taxes and Debt Policy," NBER Working Papers 9289, National Bureau of Economic Research, Inc.
  52. Flannery, Mark J. & Rangan, Kasturi P., 2006. "Partial adjustment toward target capital structures," Journal of Financial Economics, Elsevier, vol. 79(3), pages 469-506, March.
  53. Arena, Matteo P. & Roper, Andrew H., 2010. "The effect of taxes on multinational debt location," Journal of Corporate Finance, Elsevier, vol. 16(5), pages 637-654, December.
  54. Égert, Balázs & Halpern, László, 2005. "Equilibrium Exchange Rates in Central and Eastern Europe: A Meta-Regression Analysis," CEPR Discussion Papers 4869, C.E.P.R. Discussion Papers.
  55. Jeffrey MacKie-Mason, 1988. "Do Taxes Affect Corporate Financing Decisions?," NBER Working Papers 2632, National Bureau of Economic Research, Inc.
  56. Laurence Booth, 2001. "Capital Structures in Developing Countries," Journal of Finance, American Finance Association, vol. 56(1), pages 87-130, 02.
  57. Smith, V Kerry & Huang, Ju-Chin, 1995. "Can Markets Value Air Quality? A Meta-analysis of Hedonic Property Value Models," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 209-227, February.
  58. Raffaele Miniaci & Paolo Panteghini & Maria Laura Parisi, 2011. "Debt shifting in Europe," Working Papers 1121, Oxford University Centre for Business Taxation.
  59. Huang, Rongbing & Ritter, Jay R., 2009. "Testing Theories of Capital Structure and Estimating the Speed of Adjustment," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(02), pages 237-271, April.
  60. Fred Ramb & Alfons Weichenrieder, 2004. "Taxes and the Financial Structure of German Inward FDI," CESifo Working Paper Series 1355, CESifo Group Munich.
  61. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
  62. Parrino, Robert & Weisbach, Michael S., 1999. "Measuring investment distortions arising from stockholder-bondholder conflicts," Journal of Financial Economics, Elsevier, vol. 53(1), pages 3-42, July.
  63. José López-Gracia & Francisco Sogorb-Mira, 2008. "Testing trade-off and pecking order theories financing SMEs," Small Business Economics, Springer, vol. 31(2), pages 117-136, August.
  64. Ruud de Mooij & S. Ederveen, 2001. "Taxation and foreign direct investment; a synthesis of empirical research," CPB Discussion Paper 3, CPB Netherlands Bureau for Economic Policy Analysis.
  65. Stimmelmayr, Michael, 2007. "Fundamental Capital Income Tax Reforms," Beiträge zur Finanzwissenschaft, Mohr Siebeck, Tübingen, edition 1, volume 23, number urn:isbn:9783161492617.
  66. Mihir A. Desai & C. Fritz Foley & James R. Hines, Jr., 2003. "A Multinational Perspective on Capital Structure Choice and Internal Capital Markets," NBER Working Papers 9715, National Bureau of Economic Research, Inc.
  67. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
  68. Vijay Jog & Jianmin Tang, 2001. "Tax Reforms, Debt Shifting and Tax Revenues: Multinational Corporations in Canada," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(1), pages 5-25, January.
  69. Michaelas, Nicos & Chittenden, Francis & Poutziouris, Panikkos, 1999. "Financial Policy and Capital Structure Choice in U.K. SMEs: Empirical Evidence from Company Panel Data," Small Business Economics, Springer, vol. 12(2), pages 113-130, March.
  70. Mintz, Jack M. & Weichenrieder, Alfons J., 2010. "The Indirect Side of Direct Investment: Multinational Company Finance and Taxation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262014491, September.
  71. John R. Graham & Michael L. Lemmon & James S. Schallheim, 1998. "Debt, Leases, Taxes, and the Endogeneity of Corporate Tax Status," Journal of Finance, American Finance Association, vol. 53(1), pages 131-162, 02.
  72. Barclay, Michael J & Smith, Clifford W, Jr, 1995. " The Priority Structure of Corporate Liabilities," Journal of Finance, American Finance Association, vol. 50(3), pages 899-917, July.
  73. Jian Chen & Roger Strange, 2005. "The Determinants of Capital Structure: Evidence from Chinese Listed Companies," Economic Change and Restructuring, Springer, vol. 38(1), pages 11-35, 03.
  74. Yue Cheng & Christopher J. Green, 2008. "Taxes And Capital Structure: A Study Of European Companies," Manchester School, University of Manchester, vol. 76(S1), pages 85-115, 09.
  75. T.D. Stanley & Stephen B. Jarrell, 1998. "Gender Wage Discrimination Bias? A Meta-Regression Analysis," Journal of Human Resources, University of Wisconsin Press, vol. 33(4), pages 947-973.
  76. Mills, Lillian F. & Newberry, Kaye J., 2004. "Do Foreign Multinationals’ Tax Incentives Influence Their U.S. Income Reporting and Debt Policy?," National Tax Journal, National Tax Association, vol. 57(1), pages 89-107, March.
  77. Shafik Hebous & Alfons Weichenrieder, 2010. "Debt financing and sharp currency depreciations: wholly versus partially-owned multinational affiliates," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 146(2), pages 281-302, June.
  78. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
  79. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
  80. T. D. Stanley, 2001. "Wheat from Chaff: Meta-analysis as Quantitative Literature Review," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 131-150, Summer.
  81. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-275, May.
  82. Michael Overesch & Dennis Voeller, 2010. "The Impact of Personal and Corporate Taxation on Capital Structure Choices," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 66(3), pages 263-294, September.
  83. Aggarwal, Raj & Kyaw, NyoNyo A., 2008. "Internal capital networks as a source of MNC competitive advantage: Evidence from foreign subsidiary capital structure decisions," Research in International Business and Finance, Elsevier, vol. 22(3), pages 409-439, September.
  84. Eugene F. Fama & Kenneth R. French, "undated". "Testing Tradeoff and Pecking Order Predictions about Dividends and Debt.”," CRSP working papers 506, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  85. Patrik Bauer, 2004. "Determinants of Capital Structure: Empirical Evidence from the Czech Republic," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 54(1-2), pages 2-21, January.
  86. Julian Alworth & Giampaolo Arachi, 2001. "The Effect of Taxes on Corporate Financing Decisions: Evidence from a Panel of Italian Firms," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(4), pages 353-376, August.
  87. M. Ameziane Lasfer, 1995. "Agency costs, taxes and debt: The UK evidence," European Financial Management, European Financial Management Association, vol. 1(3), pages 265-285.
  88. Michael Overesch & Georg Wamser, 2010. "Corporate tax planning and thin-capitalization rules: evidence from a quasi-experiment," Applied Economics, Taylor & Francis Journals, vol. 42(5), pages 563-573.
  89. Anil Shivdasani & Irina Stefanescu, 2010. "How Do Pensions Affect Corporate Capital Structure Decisions?," Review of Financial Studies, Society for Financial Studies, vol. 23(3), pages 1287-1323, March.
  90. Blouin, Jennifer & Core, John E. & Guay, Wayne, 2010. "Have the tax benefits of debt been overestimated?," Journal of Financial Economics, Elsevier, vol. 98(2), pages 195-213, November.
  91. DeAngelo, Harry & Masulis, Ronald W., 1980. "Optimal capital structure under corporate and personal taxation," Journal of Financial Economics, Elsevier, vol. 8(1), pages 3-29, March.
  92. Amromin, Gene & Liang, Nellie, 2003. "Hedging Employee Stock Options, Corporate Taxes, and Debt," National Tax Journal, National Tax Association, vol. 56(3), pages 513-533, September.
  93. John R. Graham, 2003. "Taxes and Corporate Finance: A Review," Review of Financial Studies, Society for Financial Studies, vol. 16(4), pages 1075-1129.
  94. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
  95. Ayers, Benjamin C. & Cloyd, C. Bryan & Robinson, John R., 2001. "The Influence of Income Taxes on the Use of Inside and Outside Debt by Small Businesses," National Tax Journal, National Tax Association, vol. 54(1), pages 27-56, March.
  96. Fuest, Clemens & Hebous, Shafik & Riedel, Nadine, 2011. "International debt shifting and multinational firms in developing economies," Economics Letters, Elsevier, vol. 113(2), pages 135-138.
Full references (including those not matched with items on IDEAS)

This item is featured on the following reading lists or Wikipedia pages:

  1. Meta-Analysis in Economics

When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_3400. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Klaus Wohlrabe)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.